According to a recent bankruptcy filing, defunct crypto lender BlockFi has $227 million in uninsured funds allocated to a money market mutual fund (MMMF) offered by Silicon Valley Bank (SVB).
SVB – one of the largest banks in the US and a major partner for venture-backed companies – was closed by the California Department of Financial Protection and Innovation (DFPI) on March 10, without offering specifics on the closure.
The move adds to the carnage of the recent Silvergate bankruptcy that has seen crypto markets plummet since the crypto-friendly bank’s financial woes came to light in early March.
Some banks collapsed and then rose only
— sassal.eth (@sassal0x) March 10, 2023
Looking at BlockFi’s pending bankruptcy case, March 10 filing show that really has $227 million worth of capital in MMMF there by SVB.
In particular, the filing highlighted a balance sheet summary statement from SVB stating that BlockFi investments are not Federal Deposit Insurance Corporation (FDIC) insured deposits, are not insured by federal government agencies and are “not guaranteed by banks.”
FDIC federal deposit insurance covers up to $250,000 per depositor, but does not cover the scope of money market funds.
Money market mutual funds invest in highly liquid short-term instruments such as cash, cash equivalents and high-quality short-term debt instruments, and are regulated by the US Securities and Exchange Commission.
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Investors are issued fund shares in exchange for capital, and as such, BlockFi funds may be risk-free even in the event of an SVB issue.
Is this a regular MMF, not affiliated with SVB, held in SVB or a securities affiliate? SVB’s receivership is not affected. MMFs are not FDIC insured, but the value of the shares depends on what is in the MMF, not what happens to the SVB.
– Matt Waters (@mattwwaters) March 10, 2023
SVB offers several mutual fund investment services, but according to its website none of them manage the funds themselves. The company lists big names such as BlackRock, Morgan Stanley and Western Asset Management as fund managers.
At the same time, the risk for BlockFi in this case is most likely hindered by the performance of the fund, and has nothing to do with the financial problems of SVB.
One company that appears to be directly affected by the closure of SVB – and the bankruptcy of Silvergate – is USD Coin (USDC) issuer Circle.
According to the company’s latest audit report, on January 31, $8.6 billion, or approximately 20% of reserves, were held in several US financial institutions including SVB, Silvrgate and Bank of New York Mellon.
The exact value of SVB and Silvergate’s holdings is unclear, but Circle issued a statement via Twitter on March 10 that said the company and USDC will continue “normal operations” pending “clarity on how the FDIC receivership of SVB will impact depositors.”
Silicon Valley Bank is one of six banking partners that Circle uses to manage its ~25% share of USDC reserves held in cash. While we await clarity on how the FDIC receivership of SVB will affect depositors, Circle & USDC continue to operate as normal.https://t.co/NU82jnajjY
– Circle (@circle) March 10, 2023
At the time of writing, USDC has dropped below the $1 peg to sit at $0.98 as per CoinGecko data.